The short answer is "yes"; it is only really businesses in controversial industries that might not be eligible.
The more nuanced answer is really whether a subsidiary can be certified by itself or whether its wider group and related entities must also be certified along with it. That is what this question explores.
Most businesses applying for B Corp certification are simple contexts where only one operating and legal entity is involved. However, for some applicants (and an ever-increasing number) the business is spread across a variety of subsidiaries or partnerships. For example, a multinational or an investment management firm.
Pretty much company of any structure can certify. The question is more about how much of it must undergo the process. B Corp is a certification that is intended to apply to a whole company, whether you have 10 or 10,000 people. The question is not one of size, therefore, rather of where it's boundaries of accountability are.
So, what does that mean in practice?
NOTE: The following is primarily aimed at companies with less than $1 Billion in turnover. If your company revenue is greater than this, different rules may apply.
The Basic Approach
There are three primary areas of concern for B Lab when considering whether a company is eligible for independent certification:
- Governance. Does it have sufficiently independent governance that can meet the operational and strategic requirements of the B Corp standard?
- Brand. Is it the only corporate entity using that brand name?
- Transparency. Can the entity maintain any transparency requirements free from external interference?
The idea is to:
- encourage a whole company pursuit of the idea and avoid part commitment (e.g. greenwashing)
- protect differentiation for businesses authentically committed to being deeply purpose-led right across it from those that aren't
- maintain use of the B Corp brand only by companies who meet the standard in their entirety
What does this mean for subsidiaries?
If a subsidiary is sufficiently independent and distinct from its parent, then it can independently certify. To decide whether or not that is true, B Lab applies a number of tests:
Does it have distinct accountability?
This can be ascertained across four key areas:
- Legal Accountability. It must have a separate legal structure sufficiently able to adopt B Lab's legal requirement, depending on the geography.
Test "Yes" question: Does the company have a dedicated legal entity or entities that are able to complete the B Corp Legal Requirement for all operations in the current scope of certification, and that exercises fiduciary responsibility over the operations in scope? - Executive Accountability. It must have an independent leadership team responsible for its own decision making and all the operational responsibilities that come with that. Centralised or highly interconnected functionality shared with another company(s) are unlikely to meet this.
Test "Yes" question: Does the company have an executive team, within (reporting into) the entity or entities completing the legal requirement, that oversee core business functions such as business strategy, product design and formulation, procurement, and employee management? Is this executive team represented on the financial statements of the legal entity(s) identified above? - Product Accountability. It must control at least 90% (by revenue) of its product or service by way of design and implementation.
Test "Yes" question: Are the executives included in scope of certification directly accountable for the company’s products or services, including aspects such as the development of new product lines, selection of input materials and/or service delivery, the implementation of diversified services to new customers or client segments, and the setting of manufacturing policies, operating practices and quality standards? - Reporting Accountability. It must have a separate reporting structure - including its own P&L - that can encompass all its operations.
Test "Yes" question: Does the entity have its own consolidated financial statements?
Does it have a distinct brand name?
The certifying entity must have a distinct and solely attributable brand name. If it has the same brand name or shares its brand name in part with another entity then it may fail to meet this requirement. The intention here is to avoid any confusion in the marketplace as to whether or not that business operates at a B Corp standard.
B Lab does not certify product/service brands
One clarifying comment here is that a "brand' cannot be certified if it is just that - a brand. For example, a product or service with a unique name but not a unique operational and legal footprint.
If your company has products/services with their own brand name that is distinct from the primary brand name then those brands must undergo a brand review to be covered by the B Corp certification. What is a brand review?
Does it have distinct geography?
Same geography as Headquarters - subsidiary cannot certify independently; parent company and whole group must certify.
Distinct geography from Headquarters - subsidiary can certify independently; parent company must announce intent for whole group certification within 3 years and certify within 6.
Some Examples
Coca-Cola (parent) x Innocent Drinks (subsidiary) x Juicy Water (product brand)
Coca Cola owns Innocent Drinks. Innocent Drinks has a subsidiary called "Juicy Water".
Innocent wasn't a B Corp when it was acquired by Coca-Cola but it was eligible to certify independently because it has a distinct brand name, legal and operational structure from Coca-Cola. There is no market confusion that coca-cola is B Corp-esque if Innocent is a B Corp.
Juicy Water is a product that Innocent makes and sells but it wasn't covered by the original B Corp certification. In essence, it is designed, formulated and produced by the same people who work for Innocent Drinks: it isn't sufficiently distinct from Innocent Drinks even though it has a different name.
How to know for sure?
B Lab has a "Scoping Process" that helps companies with multiple entities discover both their eligibility and the detail of the subsequent pathway.
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